Hobby or business?
It's important to understand the differences between a hobby and a business. A small side hustle you’ve been doing for years could be classed as a business, and you may be accumulating tax debt without realising it.
A hobby is generally something you do in your spare time for pleasure or recreation.
A business is something commercial, where you aim to make a profit.
charge others for the goods/services you provide? Payment doesn’t have to be in cash.
supply goods/services on a regular basis?
intend to make a profit from providing goods/services?
plan, organise and carry out your activities in a businesslike manner, eg keep receipts and records, or have a separate bank account for your business activities?
If you answered yes to some or all of those questions, you probably need to declare your income.
If you occasionally sell your stuff to friends, at local markets, or on sites like Trade Me and eBay, you're OK. There are no tax implications for private one-off sales.
But if you’re making money from regularly selling your goods or services, including online, or you’re selling things with the intention of making a profit, you’re probably in business.
Being in business means you have to fulfil tax obligations – income tax and possibly GST too – and you’re also required to follow consumer laws.
If you’re uncertain whether you’re in business, you can speak to a legal or business advisor or an accountant who may be able to help you. Determining if you are in business — Inland Revenue Online trading tax implications [PDF,102KB] — Inland Revenue TIP Being considered “in business” isn’t dependent on a minimum income level. The deciding factor is how often you sell your product or services. What you need to do if you’re in business If you’re selling regularly, and are starting a business, you need to tell Inland Revenue and let them know when you started trading. If your sales are more than $60,000 per year, you’ll also need to register for GST. Not complying with your tax obligations can have implications for the future growth of your business. Starting a business — Inland Revenue Tool for business (tax requirements) — Inland Revenue Tool for business (GST requirements) — Inland Revenue Tell Inland Revenue when you start trading – it’s the easiest way to keep on top of tax.
What to do if you haven’t been paying tax
If you’ve been making regular sales and haven’t been paying tax, talk to your accountant, tax advisor, or contact Inland Revenue. It’s much better to speak to Inland Revenue if you’re unsure about your tax requirements than to have them come to you.
You can make a voluntary disclosure to help put your tax returns right.
Putting your tax returns right — Inland Revenue